Cerberus Kills $1.1 Billion Deal With Innkeepers

By MICHAEL J. DE LA MERCED

Published: August 23, 2011

Cerberus Capital Management and the Chatham Lodging Trust announced on Monday that they had called off a $1.1 billion deal to buy out of bankruptcy 64 hotels owned by the Innkeepers USA Trust.

In a brief statement, the two companies said the decision arose from a determination that Innkeepers had suffered a ''material adverse change'' in its operating performance. Cerberus and Chatham did not elaborate on what the so-called MAC was, but said it would probably have a prolonged negative effect on the company's business.

The two companies had agreed in May to buy the hotels from Innkeepers, which operated hotels for chains like Hilton and Marriott. It filed for bankruptcy in July 2010 after buckling under a debt load that arose from its sale to Apollo Global Management.

In June, the federal judge overseeing Innkeeper's bankruptcy case approved the sale, which was meant to lift the company out of Chapter 11 protection.

Invoking a MAC has been relatively rare since the financial crisis. Several investment firms used MAC clauses in their deal agreements to walk away from leveraged buyouts reached during the private equity boom.

Perhaps the most notable example was J.C. Flowers & Company's bitter fight to walk away from its deal to buy the SLM Corporation, better known as Sallie Mae.

In 2007, Cerberus tried to walk away from its $4 billion buyout of United Rentals - but in that case, it did not cite a MAC as a reason to cancel the deal. Instead, it said it would pay a $100 million breakup fee.

United Rentals retaliated with a lawsuit in November that year, but was defeated in court and forced to let Cerberus withdraw from its commitment.

This is a more complete version of the story than the one that appeared in print.